Exhibit 99.1
Gene Logic Reports First Quarter 2006
Financial Results; Outlook Remains Strong, Guidance Confirmed; Drug
Repositioning Partnerships Expanded
GAITHERSBURG, Md.--(BUSINESS WIRE)--April 21, 2006--Gene Logic
Inc. (NASDAQ:GLGC) today reported financial results for the first
quarter ended March 31, 2006.
Revenue
Total revenue for the first quarter of 2006 was $12.8 million
compared to $19.7 million for the first quarter of 2005, a decline of
$6.9 million.
Genomics Division revenue was $8.7 million, a decline of $4.5
million over the prior year period. As previously discussed, the
Company's Genomics Division has been transitioning over the past five
quarters from a business that generates primarily subscription revenue
from a limited number of large customers, to one that generates
multiple-sources of revenue from a growing and broadening list of
offerings and customers. The Company expects this strategy to generate
long-term revenue growth as it replaces a portion of its lost
subscription revenue with revenue from perpetual licenses and
microarray data generation and analysis services. However, as noted
above and as evidenced by the results for this quarter, when certain
opportunities fail to materialize or are deferred, the Genomics
Division's results may be variable from period-to-period and
year-over-year.
Preclinical Division revenue was $4.0 million, a decrease of $2.4
million over the prior year period, reflecting business development
challenges. The Preclinical Division backlog increased during the
quarter (see "Backlog"), for which the Company expects to generate
revenue in future periods.
Operating Expenses
Operating expenses consist of database production, research and
development, and selling, general and administrative costs. Operating
expenses do not include the cost of sales for the Preclinical
Division.
For the first quarter of 2006, total operating expenses were $18.7
million compared to $17.2 million for the first quarter of 2005,
reflecting the impact of increased marketing costs and slightly higher
expenses associated with the ongoing development and commercialization
of the Drug Repositioning Division, offset by continued economies
associated with lower costs of developing additional database content,
including lower costs for agreements with third parties and
amortization.
Segment Operating Income (Loss)
Note: Management uses operating income (loss) to evaluate segment
performance. To arrive at operating income (loss), the Company has
included all direct costs for providing its services and an allocation
for corporate overhead applied on a consistent and reasonable basis.
The Company has excluded the cost of income taxes and interest income
or expense and could also exclude certain unusual or corporate related
costs in the future. In addition, while the Company's consolidated
results of operation include adjustments to reflect the elimination of
inter-company transactions, individual segments may include
inter-company transactions. The Company does not believe such
inter-company transactions are material and believes that their
inclusion does not impact either management's or shareholders'
understanding of the Company's various segments. For the purpose of
clarity, revenue is reported net of inter-company transactions.
Segment Operating Income (Loss):
Three Months Ended
March 31,
------------------------------
2006 2005
--------------- --------------
Genomics division $ (3,805) $ 833
Preclinical division (4,969) (3,002)
Drug repositioning division (3,524) (2,457)
--------------- --------------
Total operating income (loss) $ (12,298) $ (4,626)
--------------- --------------
Genomics Division:
For the first quarter of 2006, the Genomics Division reported an
operating loss of $3.8 million compared to an operating profit of $0.8
million for the first quarter of 2005. The results reflect, most
significantly, lower sales due to the non-signing of a previously
anticipated perpetual license and the deferral of several
opportunities until later in the year.
Preclinical Division:
For the first quarter of 2006, the Preclinical Division reported
an operating loss of $5.0 million compared to an operating loss of
$3.0 million for the first quarter of 2005. The results reflect the
impact primarily of lower revenue, as well as continued high labor and
support expenses associated with the Company's underutilization of
existing study capacity and expenses of $0.5 million related to the
costs associated with partial reduction of excess capacity.
Drug Repositioning Division:
For the first quarter of 2006, the Company's loss in the Drug
Repositioning Division was $3.5 million compared to a loss of $2.5
million in the prior year period, consistent with our plan for
continued investment in the scale-up and development of the Drug
Repositioning Division.
SFAS 123(R)
On January 1, 2006, the Company adopted Statement of Financial
Accounting Standards Number 123(R), "Share-Based Payment," ("SFAS
123(R)"), which requires all share-based payments to employees to be
recognized in the financial statements based on their fair values. The
Company expects that some expenses related to prior year grants which
have not fully vested will be recognized throughout 2006, but that
more significant SFAS 123(R) expenses will not be seen until the
second half of the year, due to the expected timing of implementation
dates of various incentive compensations plans for the Company.
During the quarter, the Company recorded non-cash compensation
expense under SFAS 123(R) of $0.3 million.
Net Loss
Note: The Company reports non-GAAP results, which exclude certain
non-operational charges and non-cash charges that management generally
does not consider in evaluating the Company's ongoing operations. The
Company provides non-GAAP results as a complement to GAAP results.
Management believes these non-GAAP measures are helpful to investors
because they highlight underlying trends in the Company's base
business (defined as a combination of the Genomics Division and
Preclinical Division) and provide useful period-to-period financial
comparisons. A reconciliation of non-GAAP to GAAP results is included
in a supplemental table which follows the condensed consolidated
financial statements. The non-GAAP financial measures disclosed by the
Company should not be considered a substitute for or superior to
financial measures calculated in accordance with GAAP, and the
financial results calculated in accordance with GAAP and
reconciliations to those financial statements should be carefully
evaluated.
For the first quarter of 2006, total consolidated net losses were
$11.8 million or $0.37 per share, compared to $4.1 million, or $0.13
per share, for the first quarter of 2005. Net losses for the first
quarter of 2006 reflect primarily the impact of the revenue shortfall
in the Genomics Division. Total consolidated net losses for the first
quarter of 2006 excluding the impact of SFAS 123(R) were $11.5
million, or $0.36 per share.
Backlog
As of March 31, 2006, Gene Logic had a backlog for its Preclinical
Division of approximately $22 million, a significant increase when
compared to the $16 million as of December 31, 2005. The Company's
backlog consists of commitments under signed task orders and other
written obligations, including government contracts as to which
funding has been committed but not yet assigned to a specific project.
Liquidity
As of March 31, 2006, the Company had approximately $63.9 million
in combined cash, cash equivalents and marketable securities
available-for-sale, compared to $82.1 million as of December 31, 2005.
Cash reflects the timing of payments and normal cash expenditures
during the quarter, including payments for capital assets and certain
compensation expenses. The Company does not expect the unusually large
decline in cash reported for the first quarter to be representative of
cash usage for each of the remaining quarters in 2006.
Confirms Financial Guidance
The Company confirmed previous guidance, originally issued in its
press release on February 24, 2006:
"For 2006, the Company expects the Genomics Division to continue
to grow over 2005 results. The Company will continue to work on
addressing the financial performance of the Preclinical Division and
management is confident that progress is being made. The Company also
will continue to make a significant R&D investment in the Drug
Repositioning Division and to process drug candidates for
repositioning from the Company's pharmaceutical partners. The Company
expects 2006 revenues and earnings to show improvement over 2005,
although it is anticipated that earnings for the first half of the
year will be unfavorable to the same period of the prior year.
Finally, the Company reaffirms that, excluding the impact of the
adoption of SFAS 123(R), it will achieve profitability at some point
during 2007."
The Company financial guidance for 2006 is accurate as of this
date only, and the Company has no obligation to update this guidance.
In addition, the forecast does not include the impact of expensing
equity-based compensation under FAS 123(R), which the Company adopted
beginning in 2006.
"Our results for the first quarter of 2006 reflect the variability
we expected," said Philip L. Rohrer, Jr., Chief Financial Officer,
Gene Logic Inc. "While this variability was greater than we
anticipated, we remain confident about the future. Our sales pipelines
are robust. We are seeing growth in demand for SNP genotyping and
other data generation services. In addition, backlog for the
Preclinical Division is strong, increasing slightly more than 35%
during the first quarter."
Mark D. Gessler, Chief Executive Officer and President commented,
"We are particularly excited about prospects for our Drug
Repositioning Division. We are making favorable progress with our
existing partners and are pleased to announce the signing of the
Organon agreement. Our partnerships with Pfizer, Roche and now Organon
evidence the growing interest by the pharmaceutical industry in drug
repositioning as a way to enhance their late-stage pipelines."
Conference Call and Webcast
Gene Logic will host a conference call and webcast on April 21,
2006 at 10:00 a.m. Eastern to discuss the results for the first
quarter of 2006. Participants to the live call may dial 800/901-5218
or 617/786-4511; alternatively, a webcast of the live call will be
accessible from the Investors section of the Company's website at
www.genelogic.com.
A replay of the call will be available beginning April 21, 2006
through May 5, 2006. Participants to the replay may dial 888/286-8010
or 617/801-6888 and use the passcode 75845120. An archived webcast of
the conference call will also be available under the Investors section
of the Company's website at www.genelogic.com.
Gene Logic Overview
Gene Logic is leading the transformation of pharmaceutical
research and development with its extensive gene expression databases,
pioneering efforts in toxicogenomics, sophisticated bioinformatics
expertise, preclinical testing services and cutting edge drug
repositioning approach. Gene Logic technologies and services are used
by many of the world's top pharmaceutical and biotechnology companies.
Over 150 organizations and government agencies have benefited from
Gene Logic's diverse portfolio of drug development services, enabling
them to make more informed, more reliable and more predictive
decisions at each point in the highly complex and costly drug
development process. Founded in 1994, Gene Logic is headquartered in
Gaithersburg, Md., with additional research and development facilities
in Cambridge, Mass. and Berkeley, Calif. The Company maintains
customer support operations in the U.S., Europe and Asia and currently
has about 430 employees worldwide. For more information, visit
www.genelogic.com or call toll-free - 1/800/GENELOGIC.
Use of Non-GAAP Financial Measures
As a result of the Company's adoption of SFAS 123(R), beginning in
the first quarter 2006, the Company's earnings releases will include
non-GAAP financial measures of its financial results in addition to
normal GAAP financial measures for the reporting period. The non-GAAP
financials exclude the income statement effects of non-cash
equity-based stock compensation expense used in calculating GAAP
earnings per share. The Company believes that the presentation of
results excluding non-cash equity-based stock compensation expense
will provide meaningful supplemental information to both management
and investors that will be more informative as to the Company's
operating results and will facilitate comparison of operating results
across reporting periods. The Company is using the Modified
Prospective Method in its adoption of SFAS 123(R) and, as such, will
not be required to restate prior year results for the impact of option
expensing. The non-GAAP financial measures disclosed by the Company
should not be considered a substitute for or superior to financial
measures calculated in accordance with GAAP, and the financial results
calculated in accordance with GAAP and reconciliations to those
financial statements should be carefully evaluated.
Safe Harbor Statement
This news release contains forward-looking statements that involve
significant risks and uncertainties; including those discussed below
and others that can be found in our Annual Report on Form 10-K for the
year ended December 31, 2005 (filed on March 16, 2006) and in
subsequent filings made with the Securities and Exchange Commission.
Gene Logic is providing this information as of the date of this news
release and does not undertake any obligation to update any
forward-looking statements contained in this document as a result of
new information, future events or otherwise.
No forward-looking statement can be guaranteed and actual results
may differ materially from those we project. The Company's results may
be affected by: the extent of utilization of genomics, toxicogenomics,
bioinformatics, preclinical contract research and drug repositioning
and selection in research and product development by the
pharmaceutical and biotechnology industry; our ability to limit our
losses and become profitable; our ability to retain existing and
obtain additional domestic and international customers in a timely
manner; capital markets and other economic conditions adversely
affecting the purchasing patterns of pharmaceutical and biotechnology
companies; merger and acquisition and other consolidation trends among
pharmaceutical and biotechnology companies; levels of industry
research and development spending; risks relating to the development
of genomics and toxicogenomics-based services and their use by
existing and potential customers; our reliance on sole source
suppliers; our ability to timely supply customers with additional data
as required under some of our genomics and toxicogenomics services
contracts; risks relating to the fact that our contracts with our
Japanese customers are payable in foreign currency beginning in 2005
and may be subject to fluctuations due to changes in currency exchange
rates; our ability to achieve sufficient growth and consistent
operational performance of our preclinical services operations,
including obtaining sufficient orders from new and existing customers,
achieving optimal use of facilities and facility capacity and adequate
quality of studies; our ability to comply with, and to provide studies
that are compliant with, regulatory requirements, including those of
the FDA, DEA, and AAALAC; our ability to attract and retain key
employees; our continued access to necessary human and animal tissue
samples; the availability of large animals for clinical testing; our
ability to enforce our intellectual property rights and the impact of
intellectual property rights of others; outsourcing trends in the
pharmaceutical and biotechnology industries; competition within the
drug development services outsourcing industry; our ability to limit
losses from certain fixed price contracts for preclinical services;
technological advances or alternative technologies, methodologies and
services that may make our Genomics Division, Preclinical Division and
Drug Repositioning Division less competitive; risks associated with
valuation of assets representing acquired businesses; our ability to
successfully develop and commercialize our drug repositioning
technologies and services, and our ability to successfully develop new
indications for compounds, and to realize value from such results of
our services.
Financial tables follow.
Gene Logic Inc.
Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
------------------
2006 2005
--------- --------
Revenue:
Genomics division $8,748 $13,239
Preclinical division 4,034 6,434
Drug repositioning division 20 67
--------- --------
Total revenue 12,802 19,740
Expenses: (* see note below)
Cost of preclinical division services 6,408 7,190
Database production 7,733 8,182
Research and development 2,440 1,461
Selling, general and administrative 8,519 7,533
--------- --------
Total expenses 25,100 24,366
--------- --------
Loss from operations (12,298) (4,626)
Interest (income), net (773) (500)
Other (income) expense (3) (25)
Write-down of equity investment 275 -
--------- --------
Net loss $(11,797) $(4,101)
========= ========
Basic and diluted net loss per share $(0.37) $(0.13)
========= ========
Shares used in computing basic and diluted net loss
per share 31,788 31,708
========= ========
- ---------------------------------------------------
* Line items include non-cash stock compensation as
follows:
Cost of preclinical division services $58 $-
Database production $58 $-
Research and development $36 $-
Selling, general and administrative $163 $-
--------- --------
Total $315 $-
========= ========
Gene Logic Inc.
Consolidated Condensed Balance Sheets
(in thousands)
March 31, December 31,
2006 2005
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $28,393 $43,946
Marketable securities available-for-sale 35,515 38,179
Accounts receivable, net 6,090 3,544
Unbilled services 5,375 7,779
Inventory, net 3,809 3,117
Prepaid expenses 3,320 2,403
Other current assets 1,296 961
------------ ------------
Total current assets 83,798 99,929
Property and equipment, net 30,349 30,682
Long-term investments 2,964 3,239
Goodwill 12,913 12,913
Intangibles and other assets, net 13,142 13,956
------------ ------------
Total assets $143,166 $160,719
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,390 $5,630
Accrued compensation and employee benefits 4,611 6,702
Other accrued expenses 4,194 4,269
Current portion of capital lease
obligations 137 144
Current portion of long-term debt 497 497
Acquired technologies payable 3,500 3,492
Deferred revenue 8,208 11,595
------------ ------------
Total current liabilities 26,537 32,329
Capital lease obligations, net of current
portion 30 57
Long-term debt, net of current portion 115 127
Deferred rent 3,055 3,350
------------ ------------
Total liabilities 29,737 35,863
------------ ------------
Stockholders' equity:
Common stock 318 318
Additional paid-in capital 386,029 385,586
Accumulated other comprehensive loss (151) (78)
Accumulated deficit (272,767) (260,970)
------------ ------------
Total stockholders' equity 113,429 124,856
------------ ------------
Total liabilities and stockholders'
equity $143,166 $160,719
============ ============
TABLE A: GAAP to Non-GAAP Net Loss Reconciliation
Gene Logic Inc.
Reconciliation of GAAP to Non-GAAP Information
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
-------------------
2006 2005
--------- ---------
Items:
Non-cash stock compensation expense $315 -
--------- ---------
Total items $315 $-
========= =========
GAAP net loss $(11,797) $(4,101)
Adjusted for items above 315 -
--------- ---------
Non-GAAP net loss $(11,482) $(4,101)
========= =========
GAAP basic and diluted net loss per share $(0.37) $(0.13)
Adjusted for items above 0.01 -
--------- ---------
Non-GAAP basic and diluted net loss per share $(0.36) $(0.13)
========= =========
Shares used in computing basic and diluted net
loss per share 31,788 31,708
========= =========
CONTACT: Gene Logic Inc., Gaithersburg
Investors/Media:
Robert G. Burrows, 301-987-1824
Email: rburrows@genelogic.com
or
Investors:
Philip L. Rohrer, Jr., 301-987-1700
Email: prohrer@genelogic.com
or
Media:
Christopher Culotta, 301-987-1752
Email: cculotta@genelogic.com